November 29, 2017 / 11:45 AM / a year ago

Plan to help Brazil's Caixa with FGTS funds under scrutiny -media

SAO PAULO, Nov 29 (Reuters) - Brazil’s federal audit court will investigate whether a plan to help state-owned savings bank Caixa Econômica Federal comply with capital requirements is legal, local media reported on Wednesday.

Under the terms of the plan, Caixa would convert 10 billion reais ($3.1 billion) worth of debt owed to a worker severance fund known as FGTS into perpetual bonds, newspaper Folha de S.Paulo reported.

Though the bonds would pay higher rates, coupon payments could be suspended if the bank fails to turn a profit, it said.

As Caixa is manager of the FGTS fund, prosecutors said the transaction would be illegal and bear moral hazard, it said.

Brazilian workers are legally required to deposit a share of their wages into the FGTS fund, which pays a fixed monthly rate. Surpluses are typically invested in infrastructure projects.

The debt conversion would allow Caixa, which runs several of Brazil’s social programs, to meet new Basel III capital requirements. Should it fail to do so, the bank would be barred from extending new loans.

FGTS’s board is expected to discuss the plan in December, newspaper Estado de S.Paulo said.

Caixa and FGTS could not be reached for immediate comment.

The plan reflects government efforts to avoid tapping tax revenue as it seeks to curb a growing fiscal deficit and meet budget goals.

Policymakers previously considered a similar plan to capitalize Caixa using funds from the BNDES development bank.

($1 = 3.2131 reais)

Reporting by Ana Mano and Bruno Federowski; editing by Jason Neely

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